The heat is on

Commentary: The energy sector faces a new age.

The energy sector, always near the front of any economic or market-related discussion, is facing some upheaval. With the fantastic new finds in the natural gas field and the growing clout of alternative-energy sources, such as solar, there are questions regarding the old-guard pair of coal and oil and what role they will play in the United States’, and investors’, future. Here are a few interesting facts to help provide some perspective on the space as a whole.

Slide 2 of 8

If the trend here holds, it’s not difficult to see who the winners and losers in the future will be with regard to generating electricity. While coal would remain the overall leader, by 2040, in a projection by the U.S. Energy Information Administration, its percentage of the whole would drop by nearly 7%. The drop is accounted for by nearly point-for-point increases in natural gas and renewables. Nuclear looks to be fairly stable, but at this point, certainly not a growth story.

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Solar is experiencing an upswing in supply, but demand has leveled off for the most part over the last few years. Analysts at Baird believe that as a result, the environment for solar energy will likely remain a difficult one. They went on further to say that while demand should see good growth in the U.S., China and Japan, contraction in both Germany and Italy will probably offset any gains.

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Everyone’s always interested in gas prices, aren’t they? In this snapshot, we can see that the West Coast is outdistancing the rest of the country by quite a bit as the only region with prices over $4.00. Outside of the Rockies, prices around the rest of the country are pretty even. In the West Coast’s favor, however, is the fact that it is the only region in the country with lower prices than this time last year, according to the EIA, which shows a climb of over 11 cents for the Midwest from last year.

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Texas and California come as no surprise in terms of leading the nation in energy consumption — they’re the two most populous states in the Union. They do both contribute more than their fair share of energy production, though, with Texas leading the nation in both oil and natural gas production in 2011, as well as contributing 27% of the country’s refining capacity, according to the EIA. California ranked third in both crude production and refining capacity the same year. What isn’t shown here is that California was 48th in per-capita consumption, due to its mild climate and a variety of energy-efficiency programs.

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Having seen the top states, you can probably figure out that size plays a role in energy-consumption rankings. All of the states here are either small in size, population, or both. In Vermont, the EIA tells us that nuclear power accounted for nearly three-quarters of the state’s overall electricity production, the most of any state in the nation. Rhode Island had the lowest per-capita energy consumption in the country, while Hawaii, with its geographic isolation, ended up importing 94% of its energy supplies and had the highest electricity rates in the nation.

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In a dramatic showing of the impact that shale natural-gas discoveries are having on United States energy production, shale’s share of reserves is seen having an enormous rise compared with more conventional discoveries, which are falling. According to the EIA, Texas’ natural gas reserves represent the largest volumetric increase in the year 2010, the most recent data available, while Pennsylvania also had a notable increase. Increased drilling also helped the state of Louisiana see an increase, but not at Texas’ level.

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The table will tell you that Wyoming was the unquestioned leader among the states with regard to coal origins, shipping 107.3 million short tons (mmst) of coal to 33 different states, per the EIA, with Texas the leading destination state, receiving 27.5 mmst for the third quarter of 2012. In keeping with coal’s use as a primary producer of electricity through coal-fired plants, electric utilities and independent power producers received slightly more than 93% of the total distribution.

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